NEW YORK/LONDON: Oil traders have piled into wagers that U.S. crude oil could surge to $100 a barrel by next year, a milestone that until recently many considered unthinkable due to record U.S. production growth and relatively flat global demand.

But the imminent return of U.S. sanctions on Iran and bottlenecks keeping U.S. oil from getting to market have fueled a rally that has taken benchmark oil prices to four-year highs.

While big producing nations say supply is ample, hedge funds and speculators are increasingly sceptical of that argument, betting the market could rally further as sanctions on Iran’s crude exports return on Nov. 4.

The bullishness is visible in the U.S. options market. The number of open positions on $100 December 2019 WTI call options- bets on futures hitting that price by the end of 2019 – has risen by 30 percent in the last week to a record 31,000 lots, according to CME data.

Overall exports from Iran have dropped to 2 million barrels per day (bpd) in September from 2.8 million bpd in April, the Institute of International Finance said.

Estimates for how much of Iran’s exports could be affected range from 500,000 bpd to 2 million bpd, and uncertainty over the impact could ultimately foster price swings in either direction.

Brent crude, the international benchmark, rose above $86 a barrel on Wednesday, and U.S. West Texas Intermediate (WTI) U.S. crude hit $76 a barrel, both four-year highs.

The Trump administration’s decision to renew sanctions on Iran prompted a sharp shift from the Organization of the Petroleum Exporting Countries. After about 18 months of restraining supply, OPEC agreed to increase output.

Further, Saudi Arabia and Russia recently agreed privately to boost supply before telling other OPEC countries in an effort to mollify U.S. President Donald Trump, who has focused his anger on rising prices.

Oil markets are looking to OPEC and Russia to make up shortfalls in supply. U.S. production, which sits at a record 11.1 million bpd, cannot replace Middle East crudes, such as Iranian grades, in Asian refineries. In addition, transportation bottlenecks are constraining U.S. output.

Open interest in $100 December 2018 Brent call options LCO10000L8, which expire in late October, is currently more than 50,000 lots, more than any other strike price for that month, according to InterContinental Exchange data.

Implied volatility for very bullish Brent options that expire after the Nov. 4 resumption of sanctions has overtaken that for very bearish options, suggesting increased demand for such bullish bets.

This spread, or skew, is at its most bullish since mid-July.

Open interest in $100 December 2018 WTI calls CL1000L8, which expire in mid-November, has risen to the highest in over four months at about 15,000 lots.

Many traders said these $100 bets face long odds. Option contracts used to speculate on far-fetched outcomes tend to be cheap, and if crude’s rally stalls, those positions will expire worthlessly.

But even a short-term jump could make those options more expensive, and holders could sell them for a profit.